5/26/2005

AMES, Iowa – Many cow-calf enterprises in Iowa and the Midwest are carried out jointly by two or more people, due to the high investment involved. However, determining how input costs and profits are shared can be a complicated process. As a result, Iowa State University (ISU) Extension offers beef producers a new analysis tool to assist in establishing beef cow share agreements.

“Beef cow share agreements are an excellent way for young producers to enter the beef industry,” says Daryl Strohbehn, professor of animal science at ISU. “These contracts are ideal for producers who don’t have a lot of cash to invest in land or a large beef herd, but can offer labor and daily herd management to the agreement.”

William Edwards, Extension economist at ISU, advises that there are many ways a beef cow share agreement can be established. For example, one party may own the breeding herd while another party supplies the labor to take care of them. Facilities, feed, health costs and other resources can be shared in a variety of ways. “There are no hard and fast rules to follow,” says Edwards.

Under joint agreements, the question arises as to how income should be shared. According to Edwards, “the basic principle is that the calves or the income from the sale of the calves should be shared in the same proportion as the total costs of production.” Noncash costs for contributions such as unpaid labor and owned pasture land should be included along with out-of-pocket costs.

Besides labor, a management charge should be included to reflect both day-to-day and long-term decision making. A rule of thumb of 10 percent of all other costs is often used to value the management contribution.

To help producers with the decision-making process, and to calculate input costs for both parties, Edwards has developed an analysis spreadsheet, which can be found at www.iowabeefcenter.org. “When working with producers to determine their input costs and profit share, I found the spreadsheet to work well,” states Strohbehn. “It gives producers an excellent analysis of their agreement without being too cumbersome.”

Edwards advises that terms of a traditional livestock share lease call for the tenant to provide labor, machinery, half the livestock, half of the harvested or purchased feed, and half of the seed, fertilizer, health, marketing and miscellaneous costs. Income is typically divided half and half, as well.

There are many other variations to this arrangement, according to Edwards. “Some landowners prefer to provide all the livestock and land, but not pay any other expenses. Another variation is for an investor to provide only the livestock, which represents about 15 percent of the total costs,” he says. At the other extreme, someone who contributes only labor to care for the herd would earn about 20 to 25 percent of the revenue or calf crop.

Edwards says that the income received from selling cull cows, bulls and heifers should go to the owner(s) of the livestock, regardless of how the calves are shared. Likewise, the owner of the herd should provide replacement bulls and heifers.

When a good working relationship exists between the parties, all management decisions may be made by mutual agreement. However, Edwards recommends a written lease agreement to help avoid disagreements later on. The written agreement also provides a record for tax preparers and heirs.

“A cow-calf operation represents a substantial investment, in livestock, pasture and handling facilities,” says Edwards. “Therefore, a sharing agreement should be set up to last for at least 5 years or more.” However, details may be reviewed annually, he says. A sample cow-calf lease agreement is available from the Manitoba Agriculture and Food Agency website, found at www.gov.mb.ca/agriculture/financial/farm/caf22s01.html.